Special Needs Planning Considerations:

ABLE Accounts, Special Needs Trusts and the Survivor Benefit Plan

Military retiree benefits provide additional planning opportunities and considerations for families of special needs children and adults. In every instance, I recommend working with both an estate planning attorney with experience in special needs planning and an experienced military financial advisor. Navigating Tricare coverage and survivor benefits plan options available for special needs beneficiaries make the planning process more important and more complex. Additionally, each state will have different public benefits that may be available, so where you live or plan to live adds an additional element to consider. 

One of the major goals of special needs planning is to avoid disruption of eligibility for certain means-tested government benefits for the special needs individual. This is particularly important as the parents age and when they pass away. Two different tools that can be used to preserve eligibility for means-tested benefits include Special Needs Trusts and ABLE accounts. 

Special Needs Trusts (SNTs) and Achieving a Better Life Experience (ABLE) accounts are financial management tools designed to assist individuals with disabilities and their families in managing resources and securing their financial future. Here’s an overview of each:

Special Needs Trusts (SNTs):

• • Purpose: SNTs are legal arrangements created to hold and manage assets for the benefit of a person with a disability. The trust is designed to supplement government assistance programs like Medicaid and Supplemental Security Income (SSI) without jeopardizing eligibility.
  • Types:
    • Third-Party SNT: Established by someone other than the person with a disability, often a family member.
    • First-Party SNT (or Self-Settled SNT): Created with the disabled individual’s assets, often from a legal settlement or inheritance. This type of trust is important for military members and retirees who would like to name their special needs child as beneficiary for Survivor Benefit Plan benefits.
  • Management: A trustee is appointed to manage the trust and make decisions about the use of funds for the benefit of the individual with special needs.

I cannot stress the importance of choosing an appropriate trustee enough. Often a family member is chosen to serve as the trustee of the SNT. While this can be a good thing, it is important to make sure that the trustee is fully aware of their responsibilities and equipped to handle them. Trustees have a fiduciary obligation to the beneficiary of the trust. This means they are legally obligated to act on behalf of the beneficiary’s interest. This includes understanding the coordination of benefits and how best to meet the needs of the beneficiary, filing an annual tax return and providing an annual accounting report. Placing someone in that position who is not aware of or equipped to fulfill these obligations leads to negative outcomes for everyone involved. If you aren’t sure who to name as the trustee, there are many organizations around the country who will serve as professional trustees on special needs trusts. 

Once a first-party special needs trust is established, the beneficiary may not be changed. However, beneficiaries of third-party special needs trusts may be subject to change depending on the language in the trust document.

While beneficiaries are living, the funds within a first-party trust protect the beneficiary’s ability to qualify for means tested public benefits. Once the beneficiary passes away, the funds within the trust are subject to state Medicaid reimbursement. A key element to remember while developing your planning is that third-party special needs trusts are not subject to state Medicaid reimbursement. 

• Benefits: SNTs provide additional options for providing for the future needs of a family with disabilities that will protect their eligibility for certain means tested government benefits, provide a pool of money to supplement those benefits and allow military retirees to incorporate SBP into their planning. 
  • Protects eligibility for government benefits.
  • Provides for supplemental needs not covered by public assistance.
  • Enables family members to contribute to the individual’s financial well-being. Military members and retirees may elect Survivor Benefit Plan (SBP) benefits for their children with disabilities. This may be done under the spouse-child option when the child has a long-term disability or as a child only option. The coverage applies even when the beneficiary has aged into adulthood. A self-funded special needs trust can be used to ensure the money doesn’t put other government benefits that the child may be using at risk. However, SBP payments would need to be irrevocably assigned to the self-funded special needs trust. You will need to coordinate between your attorney and DFAS to make sure the benefits are correctly assigned.
  • First-party special needs trusts and third-party special needs trusts are not subject to annual contribution limits. There are no limits on the total amount of money that can be held in either type of account.

Achieving a Better Life Experience (ABLE) Accounts:

• • • Purpose: ABLE accounts are tax-advantaged savings accounts for individuals with disabilities. They allow eligible individuals to save and invest money without affecting their eligibility for certain means-tested benefits. Each state operates an ABLE account for beneficiaries in their state. However, much like 529 plans, you are not limited to investing only in the plan sponsored by your state.
    • Eligibility: Individuals must have a significant disability that occurred before the age of 26. Eligibility is not limited to those receiving SSI or SSDI.
    • Contributions: Contributions to ABLE accounts can be made by the account beneficiary, family members, or friends. Contributions are not tax-deductible, but earnings in the account grow tax-free. While there are some tax benefits to contributing to an ABLE account, the real benefit lies in the ability to set aside funds without disrupting eligibility for public benefits that may be needed now or in the future.

Many families with special needs children are unsure of how much assistance their children will need in the future. This is particularly true when their children are young. One great benefit of ABLE accounts is that you can rollover a 529 Plan account into an ABLE account. This allows families to save for their children’s future while keeping the flexibility to roll the money into an ABLE account if needed.

• Use of Funds: ABLE account funds can be used for qualified disability expenses, including education, housing, transportation, healthcare, and other living expenses.
• Benefits:
  • Allows individuals with disabilities to accumulate savings without losing government benefits.
  • ABLE accounts provide the beneficiary with a degree of financial independence and flexibility. This is particularly true for those who may have physical disabilities, who need public benefits assistance, and who also want to have direct control over their money. ABLE accounts can be used in conjunction with a special needs trust.
  • Offers a tax-advantaged way to save for disability-related expenses.

The rules and regulations for both SNTs and ABLE accounts can be complex, and it is always recommended to consult with an experienced special needs estate planning attorney. Coordinating with your financial advisor who is experienced in disability planning and military and federal benefits can help you consider all the options when it comes to utilizing your benefits to help provide for your loved ones.

The financial planners at the Military Financial Advisors Association are here to help you consider your options when it comes to planning for children and adult children with disabilities. Reach out to one of us today!